International Business
Chapter 2 Review Questions

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1. Name the one pillar that supports formal institutions and the two additional pillars that support informal institutions.

Answer: Regulatory Pillar that supports formal institutions and other two additional pillars name are Normative Pillar and Cognitive Pillar. Normative pillar refers to how to values, beliefs, and actions- collectively known as norms of other relevant players influence the behavior of focal individuals and firms. Cognitive pillar is the school support for informal institutions. It refers to the internalized values and beliefs that guide individual and firm behavior.

2. How does political risk affect global business?

Answer: Managers and firms rationally pursue their interests and make choices within the formal and informal constraints in a given institutional frame work. While formal and informal institutions combine to govern firm behavior, in situations where formal constrains are unclear or fail, informal constrains will play a larger role in reducing uncertainty and providing constancy to managers and firms.

3. Describe the differences among the three types of legal systems.

Answer: Three types of legal systems are Civil law, Common Law, and Theocratic Law. Civil Law is a tradition that uses comprehensive statutes and codes as a primary means to form legal judgments. Common law is A legal tradition that is shaped by precedents from previous judicial decisions. Theocratic law is a legal system based on religious teachings.

4. Name and describe the three economic systems. Which economic system is the most common and why?

Answer: Three economic systems are Market economy, command economy and Mixed economy. Market economy is an economy that is characterized by the “invisible hand” of market forces. Command Economy is an economy in which theoretically all factors of production are state owned and state controlled, and all supply, demand, and pricing are planned by the government. Mixed economy is an economy that has elements of both a market economy and a command economy.

5. In what ways do institutions influence individuals’ and firms’ behaviors? Explain your answer.

Answer: Institutions influence the decision-making process of bothindividuals and firms by signaling what conduct is legitimate and acceptable and what is not. Basically, institutions constrain the range of acceptable actions.

Page 2 Law and Informal Institutions Essay

6. What fundamental aspect of democracy is relevant to the effective conduct of global business?

Answer: Democracy is a political system in which citizens electrepresentatives to govern the country on their behalf. Usually the political party with the majority of votes wins and forms a government. Fundamental aspect of democracy that is relevant to global business is an individual’s right to freedom of expression and organization.

7. Name and describe the four types of totalitarianism.

Answer: Communist Totalitarianism centers on a communist party. This system was embraced throughout central and eastern Europe and the former soviet union until the late 1980’s. It is still practiced in China, Cuba, Laos, North Korea, and Vietnam.

8. Give an example of how theocratic law affects daily business operations.

Answer: Theocratic law is based on religious techniques. In Saudi Arabia, McDonald’s operates “ladies only” restaurants in order to comply with the Koran’s ban on direct, face to face contact between unrelated men and women in public.

9. Name three types of intellectual property, and explain how they could be used in business.

Answer: Patents are legal rights awarded by government authorities to inventors of new products or processes. The inventors are given exclusive (monopoly) rights to derive income from such inventions through activities such as manufacturing, licensing, or selling. Copyrights are the exclusive legal rights of authors and publish and disseminate their work, for example the book you are reading now is protected by copyright. Trademarks are the exclusive legal rights of firms to use specific names, brands, and designs to differentiate their products from others.

10. Our current system of intellectual property protection stems from what early patent law?

Answer: Couldn’t find it in the book but guessing, most probably it is a civil law?

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